Revision and practice on the reasoning behind choosing or changing a business's legal form.
Key vocabulary: Limited liability, Unlimited liability, Sole trader, Partnership
Private Sector: Owned by individuals. Main aims are profit, growth and survival.
Public Sector: Not-for-profit (usually providing a service). Funded and controlled by government. Objectives include efficiency and value for money (for taxpayers).
| Legal structure | Description | + | − |
|---|---|---|---|
| Sole Trader | 1 person working on their own, e.g. plumbers, hairdressers | Easy to set up; own boss; keep profits; do not have to register the company | Unlimited liability; face difficulties raising finance; work long hours/holiday cover; must declare profits to HMRC for tax reasons |
| Private Limited Companies (LTD) | Shareholders are friends/family. Board of Directors. Costs as little as £15 to register a company in the UK. | Limited liability; raise capital from shareholders | Legal paperwork to set up; conflict between shareholders |
| Public Limited Companies (PLC) | Shares sold on the stock exchange. Market Capitalisation (total value of issued shares). | Limited liability; sell shares to raise capital | Divorce of ownership; pay dividends |
Limited Liability: If the business goes into debt, you only stand to lose what you originally invested.
Unlimited Liability: If the business goes into debt, you are liable to pay back all debts of the business. This may mean your personal assets are at risk.
When Tadashi Yanai took charge of his father's Yamaguchi-based clothing business in 1984, he opened the first Uniqlo store in Hiroshima the same year. Within seven years the company had grown to 29 stores and was renamed Fast Retailing. Today, Fast Retailing is one of the world's largest apparel companies, operating over 2,000 stores worldwide as a publicly listed company — a scale of growth that a PLC's ability to raise capital from shareholders helped make possible.
Source: verified via search, September 2026 — Wikipedia and Forbes India coverage of Tadashi Yanai and Fast Retailing's history.
Tim Martin opened his first pub, "Martin's Free House," in Muswell Hill, north London, in 1979. As the business grew, Wetherspoon floated on the London Stock Exchange in 1992 with 44 pubs, raising capital that fuelled national expansion beyond London — a clear example of how becoming a Public Limited Company can provide the finance a growing business needs to scale up.
Source: verified via search, September 2026 — Wikipedia and Lovefood coverage of JD Wetherspoon's company history.
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1. What is a key feature of a sole trader business?
2. What does "unlimited liability" mean?
3. What is "Market Capitalisation"?
4. According to the lesson, what is a key drawback of becoming a Public Limited Company (PLC)?
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Short, snappy recall questions — tap to reveal the answer.
If the business fails, the owner only loses what they originally invested.
The owner is personally liable for all the business's debts.
Any one of: a sole trader, an ordinary partnership.
Owned by individuals; aims include profit, growth and survival.
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Connecting to finance (3.1.4): A PLC's ability to raise capital by selling shares is a form of external, non-repayable finance, quite different from a bank loan. Strong students should be able to explain that selling shares dilutes ownership (each existing shareholder owns a smaller proportion of the company) in a way that borrowing does not, which is part of the "divorce of ownership" trade-off PLCs face.
A common mistake is confusing a Private Limited Company (LTD) with a Public Limited Company (PLC) — only a PLC's shares can be bought and sold by the general public on a stock exchange. An LTD's shares are only available to the specific people the company chooses (often friends and family), which is exactly why LTDs are typically smaller and PLCs can raise far larger amounts of capital.
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Give me a short scenario about a growing sole trader business. Ask me to recommend whether it should become a Private Limited Company or stay as a sole trader, then challenge me to justify my answer using both benefits and drawbacks.